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What are the big economic trends on the way in the next decade?

Opinion: here’s how the US economy, Chinese growth, oil prices, globalism, unemployment and Brexit will affect our world

At the start of the year, there is great interest in making predictions. But instead of making short term predictions for 2019, what are some of the big trends which may dominate the next five to ten years?

The US dominance of the world economy is over
The election of President Trump in 2016 was as much a consequence of this development as one cause of it. In 2014, according to some measures, the US ceased being the world’s largest national economy and China is now number one. It is likely that trading relations between these two superpowers will remain strained. In passing, it is worth noting that the Indian economy is also growing very rapidly and probably became larger than the UK in 2018.

Some implications of this trend:
(i) if we are looking for inward investment, we should expect much of it to come from East or South Asia. Similarly, these parts of the world will be the source of growth in tourist numbers.

(ii) protection of intellectual property against espionage coming from some Chinese companies will be a continuing challenge.

(iii) regardless of the final terms of Brexit, we need to aim for wider global markets.

(iv) Trump’s reductions in US corporation tax rates will reduce the mileage which could be expected from any further reductions in this tax in a post-Brexit UK or Northern Ireland.

Oil price volatility will continue
Over and above simple supply and demand factors, what happens will be partly determined by a geopolitical struggle for influence between Iran, Saudi Arabia and Russia. Add to this the growing evidence that the regime in Saudi Arabia is increasingly unstable.

Some implications of this trend:
(i) it would be sensible to seek as much diversity as possible in sources of oil supplies and indeed other energy sources.

(iii) we cannot assume that the world oil price will necessarily be on continuous and steady upward path.

(iv) if the IPCC forecasts on global temperature rises are taken at face value, they provide a strong case for dramatic decarbonisation. One problem with this is that there is very little appreciation of how radically we might have to alter consumption (much less air travel or eating of beef). Also, it cannot be assumed that the non-fossil fuel technologies will necessarily give us low cost energy supplies.

Nationalism and populism will bring a reaction to economic globalism
During the 1950s to 1990s, many governments around the world were willing to submit to international agreements and rules in the hope that we could all gain by so doing. Now, there is an increasing tendency towards self-assertion. Once again, Trump’s America first exemplifies this but he is far from unique.

Some implications of this trend:
(i) does this mean that a post-Brexit UK trying to make free trade agreements with other countries will be out amongst the wolves? Or does it mean that the UK could play a very valuable role in trying to reverse a global trend towards protectionism?

From RTÉ Radio 1’s This Week, Timothy Garton Ash on how competing political forces across Europe are engaged in a critical battle between the forces of liberalism and populism

(ii) Northern Ireland should expect much less interest from the international community. While there was a lot of interest from the US, EU and elsewhere in the “peace process”, outsiders are now going to be more preoccupied In any case, there may be a sense of boredom about the Northern Ireland problem and an understandable feeling that we need to stand on our own two feet and tackle our issues.

(iii) The end of the Cold War in the 1990s produced something of a peace dividend as most NATO members were able to slash defence spending. Expect defence spending to rise as east-west tensions increase again, which implies higher taxation and lower consumption. On the other hand, it could be good news for businesses making defence equipment.

The end of mass unemployment
One of the surprises of the last decade is the much better than expected employment performance. Existing trends, such as the very contrasting demands for highly skilled and low skilled, will continue. Some sectors, such as manufacturing, food processing and social care, will continue to struggle to find labour. This will be especially so as the tap of supply from the EU is turned down. Will we be able to draw more on the economically inactive?

Northern Ireland will continue to be one of the weakest regional economies in Europe
The level of income per head will remain well below the UK or EU averages with little or no convergence. The UU Economic Policy Centre forecast that Northern Ireland’s economic growth rates over the next five years could be as low as one percent annually or less.

Some implications of this trend:
(i) any long run effect from Brexit will come on top of a longstanding and pronounced weakness.

(ii) Brexit does at least force us to consider whether a “business as usual” approach to the Northern Ireland economy is adequate. It is not. While Brexit could increase the pressure to do some of the hard things which should have been done anyway (e.g. trade with more distant markets, engage with economically inactive and reform support form farming), is there the will to do this?

I apologise if a lot of this appears as unrelenting gloom

(iii) it is sometimes argued that one consequence of the Brexit debate has been that “normal politics” has been suspended – who now talks about how to reform, say, the NHS or apprenticeship systems etc? Indeed, when did Northern Ireland last have normal politics, especially with Stormont suspended for close on two years?

Conclusions
I apologise if a lot of this appears as unrelenting gloom. Some long term trends are favourable – on average, people have been becoming richer and are living longer lives – and such trends will probably continue. At the same time, to be forewarned is to be fore-armed. If we know what the negative trends are, we can try to take steps whether as businesses or individuals to reduce the impact.